Property Rental LawsUrban Crossroads #8

The legal environment regulating the ownership, sale, and rental of real-estate properties plays a very important role in defining the character of the city. This clearly is evident upon examining the evolution of the law governing the rental of real-estate properties in Jordan. The law has been a subject of considerable contention, as evident in the passionate articles that regularly appear about it in the local press.

The law governing the rental of real-estate properties was modified in 2000. Before that, the tenant basically could continue renting a property indefinitely, and at the same initial rent irrespective of the terms of the rental contract. The government did have the authority to stipulate rent increases, but only did so on a couple of occasions. The owner would never be able to terminate the lease as long as the tenant paid the rent. However, the tenant always held the right to vacate the property at the end of a given year if he or she wished to do so. The rights of the tenant were extensive, and in many cases, the tenant even could pass on the rental agreement to his or her inheritors. As a result, the renting of real-estate properties was not a particularly rewarding investment in Jordan since the value of the initial rent would be eaten up by inflation year after year, and the owner would end up getting a very poor return on his or her initial investment.

As part of Jordan's policies of economic liberalization, this law was amended in 2000. Accordingly, all new rental agreements now are governed by the rental contract, and the owner or tenant would be able to renegotiate new terms upon the expiry of the period of the contract, or simply choose not to review it. As for rental agreements carried out before 2000, a grace period of ten years was provided for them during which the preexisting law would remain in effect. After that, the new law would be applied.

The new law has had positive effects. Ownership of residential units in Jordan has increased considerably since many tenants now find it preferable to pay a mortgage that leads to ownership than pay rent and renegotiate rental contracts, or have to vacate a property upon the expiry of a contract. Also, rents have gone down for new contracts. This is partly because owners who previously were not willing to rent out properties because of the restrictions imposed by the old law now are willing to do so. This has brought about an increase in the supply of rental properties.

Not surprisingly, tenants with rental contracts from before 2000 are not happy with the new law, and a number of them, primarily business owners who rent their shops, are trying to get it repealed. The old law clearly was biased towards them since it allowed them to indefinitely occupy properties for very low rents. In other words, the old law provided tenants with a subsidy underwritten by the property owner. Clearly, those tenants do not want the advantages that the old law offered them to end.

Although many tenants from the pre-2000 period are not happy with the new law, it nonetheless provides an improvement in the investment climate in Jordan. Another interesting benefit of the new law is that it will significantly contribute to limiting the dilapidation of buildings in our cities. The old law brought about a rather curious psychological frame of mind according to which neither the tenant nor the owner had any interest in setting aside resources for the maintenance of rented properties once a few years of the period of a rental contract passed. The tenant, although for all intents and purposes would be able to occupy the property indefinitely, had no interest in maintaining it since he or she did not own it. Also, since the real value of the rent went down year after year as a result of inflation, it would be difficult to demand proper maintenance from the owner since he or she eventually would not be making a fair return on investment. In contrast, under the new law, the tenant has every right to demand from the owner adequate maintenance of the property since that tenant is paying market rates for it. Also, the owner has every interest in maintaining the property in good condition. A dilapidated property would become less attractive to tenants, and the value of its rent would go down.